Plea for easier blue-chip raisings

Blue-chip listed companies seeking to issue bonds to retail investors could be excused from publishing complex prospectuses, in a government shake-up designed to boost the retail corporate bond market.

Senior executives yesterday called for the government to ease the regulatory burden on companies selling bonds in Australia so they have better access to local investors.

Ahead of a release of a discussion paper on the local corporate bond market by Treasurer
Wayne Swan
today, institutional investors said making it easier for retail investors to buy corporate debt would be only a first step in developing a deep and liquid corporate bond market.

As foreshadowed in The Australian Financial Review yesterday, the government is aiming to streamline prospectus requirements and reduce the legal burden on company directors issuing bonds to retail investors.

The discussion paper, obtained by the Financial Review, reviews the requirement for directors being personally liable for any misleading or deceptive statements or material omissions contained within retail disclosure documents.

It floats an optional regime for prospectuses for “plain vanilla" retail corporate bonds denominated in Australian dollars, for issuances worth at least $50 million.

To be eligible, a company would need to be listed, with quoted securities that comply with continuous disclosure requirements.

The other option suggested is allowing companies to produce a simpler and shorter prospectus.

“Secondly the cost of issuance is more expensive relative to overseas alternatives such as the 144A market in the US."

Metcash chief financial officer Adrian Gratwicke said tenor, cost of raising debt and ease of access were the key reasons why the company chose to issue bonds in the US. “It’s easier to raise funds overseas than it is through a domestic issuance," he said.

“Tenor has been a major attraction for Australian companies in international markets. You don’t have access to that 10, 12 and 15-year debt in the domestic bond market."

“We’d always prefer to raise domestically if we could."

Australian companies have raised about $39 billion this year and have $173 billion of debt outstanding, of which 81 per cent has been issued into overseas markets.

Mr Swan said a deeper and more liquid corporate bond market was important for the financial sector and broader economy.

“This is increasingly important at a time when international debt markets are facing such difficult headwinds," he said.

“We have a huge pipeline of investment opportunities that is helping to drive significant growth and transformation in our economy.

“And these projects need to be able to access funds, just as the entire business community does."

The government is tempering expectations about a “quick fix" to the problem and wants the private sector to be part of the solution.

The Treasurer will meet key financial regulators, fund managers and market participants at Credit Suisse in Sydney today to discuss the issue.

Their talks are expected to focus on potential steps to encourage more of Australia’s $1.3 trillion superannuation pot to buy corporate debt.

“If you rely just on the retail market, that’s going to be tough to get substantial corporate bond issuance because the banks and investment banks would have a hard time lining up all the retail interest," he said.

Australian super funds prefer shares to bonds. They have just 14 per cent of their portfolios in bonds, compared with 27 per cent for pension funds in the US, 36 per cent for Canada and 56 per cent for Japan, according to Towers Watson.

The manager of treasury at utility SPAusnet, Alistair Watson, said he raised $250 million locally earlier this year, but would have liked to have taken as much as $500 million.

“It seems like the roaring success of hybrids showed that there is retail demand out there, and when we issue in the wholesale market there is demand. So we’re hopeful that fund managers can allocate more to fixed income because the interest is there."

But most hybrid securities would not qualify for the government’s streamlining proposals.

Debt capital market advisers said the local corporate bond market had progressed well in the last two years, with high quality names including Woolworths, Wesfarmers, Origin Energy, ANZ and Commonwealth Bank doing deals locally in the last two years.

Citigroup director of capital markets origination James Arnold said plain vanilla corporate bond issuances to retail investors were a challenge, because of attractive yields on offer in term deposits.

“But if you can add a slightly different capital instrument [like hybrid bonds] retail investors do have a good opportunity there."

The government will also announce it will allow retail investors to buy and trade commonwealth government securities on a retail platform through an indirect or beneficial ownership trading model.